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1. How do the retailing strategies of Sears and Wal-Mart differ?

It is remarkably revealed from their slogans.

Sears’s slogan was “Come see the softer side of Sears.” That means Sears focused on updating its merchandise selection by re-orienting the product mix and offering company’s own proprietary credit card to pay for merchandise that could only be used in its own stores. These strategies appealed to a target audience of middle-class female shoppers and enhance the customer’s flexibility.

Wal-Mart‘s slogan was “Always low prices.” Wal-Mart more focused on competitive price on its products. It enhanced its effective operation and bargaining. It also operated Sam’s Club membership warehouse and Supercenters. However in the credit segment, Wal-mart didn’t issue its own credit card, just issued by Chase Manhattan Bank. So it bore less risk of user’s late payments or failing of pay off.

2. What is driving the performance of these two companies during fiscal 1997?

Even though, Sear had been experienced financial difficulties, so, its asset turnover was poor, it had high leverage because of high level of total asset. Wal-mart and Sear’s profit margin rates were similar, but Wal-mart’s asset turnover was approximately 2.6 and leverage was 2.3. However Sears’ asset turnover was 0.94 and leverage was 6.6 that was high number. Therefore even sear’s financial difficulty, it can get a lot of ROE because of its high leverage.

Wal­Mart focused on its effective operation and investment. However Sears’s large proportion of credit card financing which contributed to high ROE.

3. What ratio is most important in assessing current and predicting future value creation for Sears? For Wal-Mart?

In 1997, the Sears Card accounted for 55.1% of total sales. With these huge proportions of dependence on credit card sales, delinquency as % of end-of year credit card receivables was 7% in 1997. In this situation, the key point is whether they could get back their accounts...